Two major manufacturers are preparing to sell vehicles directly to consumers in California without using franchised new motor vehicle dealers in a clear violation of California law. Acting through Volkswagen entities, Scout Motors, a Volkswagen affiliate, plans to commence sales of Scout vehicles in 2027. Sony Honda Mobility of America, a joint venture between Honda and Sony, plans to start selling its Afeela vehicles in the spring of 2026.

Scout Vehicles

On Oct. 24, 2024, Scout Motors announced its plans to manufacture a Scout Traveler SUV and a Scout Terra pickup truck with initial production targeted for 2027. Scout Motors says it is an independent startup and will have an exclusive Scout Motors retail network. It plans to build dedicated retail facilities called Scout Studios to engage customers and Scout Workshops for vehicle service needs. Scout Motors, a DMV-licensed manufacturer and Scout Motors Sales, a DMV-licensed vehicle dealer, plan to sell Scout vehicles directly to customers without using the new motor vehicle franchise model of independent new motor vehicle dealers who purchase vehicles from manufacturers and sell them to customers. 

Scout Motors’ website, www.scoutmotors.com, is one of the ways Scout Motors markets its company and its vehicles. The website advertises the anticipated prices of the Scout Traveler and Terra vehicles and provides detailed information about the vehicles and Scout Motors. On its website, Scout Motors solicits customers to pay $100 to reserve a Scout vehicle for purchase or lease and provides an online reservation system for interested customers. It is reported that Scout has received over 50,000 reservations.

Afeela Vehicles

On March 4, 2022, Sony Group Corporation and Honda Motor Co. Ltd. issued a news release announcing they had signed a memorandum of understanding outlining their intent to establish a joint venture to develop high-value-added electric vehicles (EVs). The announcement stated: “This alliance aims to bring together Honda’s mobility development capabilities, vehicle body manufacturing technology and after-sales service management experience cultivated over many years, with Sony’s expertise in the development and application of imaging, sensing, telecommunication, network and entertainment technologies …” The announcement further said: “The new company is expected to plan, design, develop and sell the EVs, but not own and operate the manufacturing facilities, so Honda is expected to be responsible for manufacturing the first EV model at its manufacturing plant. It is expected that a mobility service platform will be developed by Sony and made available to the new company.”

Honda and Sony formed Sony Honda Mobility of America in 2023 and has both a manufacturer and a vehicle dealer DMV license. It is actively marketing its Afeela vehicles on its website at www.shm-afeela.com and in many other ways. It solicits customers through its website to pay a $200 fee to reserve a purchase of the vehicle. Like Scout, Sony Honda plans to sell its vehicles directly to customers without using independent, franchised new motor vehicle dealers. Afeela vehicles will be serviced by Crash Champions, which has an extensive network of vehicle collision repair locations. Sony Honda will begin pre-delivery preparations in the spring of 2026.

CNCDA-Sponsored Legislation To Protect the Franchise System

In 2023, the California Legislature enacted AB 473, CNCDA-sponsored legislation, to protect franchised new motor vehicle dealers. Subsection (b) of Section A of that legislation provides: “The new motor vehicle franchise system, which operates within a strictly defined and highly regulated statutory scheme, ensures the consuming public of a well-organized distribution system for the availability and sale of new motor vehicles throughout the state, provides a network of quality warranty, recall and repair facilities to maintain those vehicles, and creates a cost-effective method for the state to police those systems through the licensing and regulation of private sector franchisors and franchisees.”

Vehicle Code Section 11713.13 (o)(1) is a very significant provision of AB 473. It provides: “It is unlawful and a violation of this code for a manufacturer, manufacturer branch, distributor or distributor branch licensed pursuant to this code to do, directly or indirectly through an affiliate, any of the following: to compete with their franchisees in the sale, lease or warranty service of new motor vehicles.”

Subsection (z)(1) of Section 11713.13 adds an important element to the prohibition of manufacturer competition by defining an affiliate: “Affiliate” means a person who directly or indirectly, through one or more intermediaries, controls, is controlled by or is under the common direction and control with, another person. “Control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of any person.” This is important because manufacturers are not allowed to compete with franchised dealers by acting through affiliates, and that is exactly what Volkswagen and Honda are doing with the Scout and Afeela vehicles.

The CNCDA Lawsuits

CNCDA has filed a lawsuit over the Scout vehicles against Volkswagen Group of America, Volkswagen AG, Scout Motors and Scout Motors Sales LLC, which is pending in the United States District Court for the Southern District of California. CNCDA has also filed a lawsuit over the Afeela vehicles against American Honda Motor Co., Sony Honda Mobility of America, and Sony Honda Mobility, which is pending in the Los Angeles County Superior Court. Both lawsuits allege that the defendants have violated California Business and Professions Code Section 17200, which prohibits unfair competition, among other things, and unlawful and unfair business acts or practices. Both lawsuits also claim that taking reservation deposits is a false advertisement under California Business and Professions Code Section 17500 because of the unlawfulness of the direct-to-consumer sales model.

Both CNCDA lawsuits are asking the court to declare that the Volkswagen and Honda direct-to-consumer sales and service model, and taking reservations, are a direct violation of Vehicle Code Section 11713.13 (o)(1). The lawsuits also request that the unlawful behavior of the defendants be permanently prohibited. If the court rules that the activities of the defendants are unlawful, the DMV could charge the defendants who are licensed with license violations and ask that their licenses be revoked, suspended or put on probationary status. The actions of the defendants appear to be clear violations of California law, so stay tuned for further developments.